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Tanzania: Service Sector GDP Share Rises to 49 Per Cent

Contribution of the vibrant service sector to the country's Gross Domestic Product (GDP) has risen to 49 per cent, the UN Conference on Trade and Development's (UNCTAD) Economic Development Report 2015 has revealed.

According to the 'Unlocking the Potential of Africa's Services Trade for Growth and Development' themed report, the service sector, which is often overlooked, has been on the rise in Africa contributing to the continent's development.

In Tanzania, the report shows, 21 per cent of formal employment is in the service sector, with the number likely to double because the formal sector in the country is huge.

The reports noted that during the 2009-2012 the service sector in Africa grew at a rate at a rate of 4.6 per cent compared to 5.4 per cent in the developing world.

In Tanzania the sector grew by 7.6 per cent in the same period, well above the continent's growth rate. The fastest growing service subsectors were transport, storage and communication.

World Bank Lead Economist for Tanzania Jacques Morisset told reporters in Dar es Salaam yesterday that reforms were needed to make taxes more affordable, fair and transparent to enhance compliance and raise revenue collection.

"Tax revenue to GDP is 12 per cent, which is one of the lowest in the world, even when you compare with the lowest economies," he said at his briefing of the seventh Tanzania Economic Update titled: 'Why Should Tanzanians Pay Taxes?'

He said the government collected 6.0 billion US dollars worth of revenues or approximately 12 per cent of the total economic output in 2014, enough to cover almost three quarters of government expenditure, but insufficient to fund much needed investments in infrastructure and social services.

The need to collect more revenues had become more pressing because other sources of financing, such as official aid, were declining and commercial borrowing remained restricted, he said. Over the past two years, the government had cut its expenditure plans and accumulated massive arrears.

While there is a room to improve the efficiency of government spending, domestic revenue should increase with a sense of urgency, he noted.

"The low level of tax revenue collection reflects systematic issues in policy and administration. It also has serious repercussion for Tanzania's economic future," the 7th Tanzania Economic Updates reads.

"Tax revenues are currently too low to finance the country's ambitious, but vitally necessary, public investment programme.

At the same time, other sources of financing are increasingly limited, particularly with the decline in the value of aid inflows and with limited availability of loans from the private sector."

It recommends that the tax system should be perceived as fair, affordable and transparent by taxpayers and level of tax revenues should be sufficient for the state to satisfy the current and future needs of the citizens.